plunge the 7.8 billion dollars missed. after forecasting weaker subscriber growth. here in new york, it is primary day. a big test of confidence as trumping clinton look to win in the trading business has been problematic for banks. goldman sachs is no exception. the state they both call home. on revenue and a beat on etf's to lower estimates and a miss on trading revenue. david: welcome to "bloomberg i will dig into the statement and take a look at some of the ." market reaction. return on average i am david westin, with vonnie equity, 6.4% which is pretty quinn in new york. jon ferro is in london for the dismal. bill cohen is with us. week. vonnie: in the next three hours, we will be speaking with johnson & johnson cfo dominic caruso. and laura keller joins us as well. sheila bair joins us. sachs had already and bank of america/merrill lynch. had its estimate cut substantially. this is a miss off of estimate that were down dramatically. let's get a check on the markets. jon? they did apparently beat on 100, early on in

the etf line after bringing it down like 50%. it was a tough quarter. the session, the stock 600 quarter as the kissed the three-month high. 18 out of the 19 industry groups eighth largest drop in the dow in the green in europe. in history, -- it took a lot of futures are in positive territory in the u.s. green, leading the people by surprise. you would think wall street gains in the commodity markets. traders might pick up on this somehow or beeper aired. number fallings that's what you are seeing in 60% on sunday. numbers across the board the labor strike put at the fore especially on trading. morgan stanley and goldman sachs don't have other sources of in crude, with a headline coming revenue to help them out in situations like this. out of sunday's meeting. you see the risk-on in the fx market sql -- in the fx market goldman sachs always had a reputation for being smarter than everyone else and being better traders. i am curious to see whether in as well. the trading businesses, they were able to do that or the at 1.79 as well. morgan stanley. revenuetotal trading -- with 109.35 as well. beat estimates but it was still matt: we are about to hit the down 40% from last year. something like morgan stanley heart of earnings season. 80% of s&p companies will report

in the next couple of weeks. which has been deemphasizing trading in recent years has something like $850 million of revenue in trading which was quite low for them. got destroyed premarket yesterday after a disappointing i'm sure goldman sachs did better than that. outlook for international subscriber additions. they beat on every measure in q1 does olbermann have the earnings, but forecast 2 million exceptionalism that people had come to expect? jon: total trading revenue is international ads. the street was looking for 3.5 million in this coming quarter. it beat 17 out of take a look at this screen. the last 18 quarters. shouldn't we pay more attention volatileyou how netflix is. to actually what is happening in more than half of the last 10 with these banks on wall street? times netflix has reported earnings, the stock has moved bank of america is the only one that missed. more than three standard is down andrevenue deviations, which is absolutely huge. , that to look at ibm profits are down and they are struggling to get revenue. how much does this go on for? >> you are right. company out with first-quarter earnings or down earnings, the shares down premarket. from what people expected or down from the previous quarter. the company forecast q2 earnings lower than projections. they are still making five alien dollars of profit. ibm has suffered a four-year sales slump in an attempt to -- five billion dollars of profit. move into cloud computing and

artificial intelligence. this shows is that there is it has been tough going for that company. united health is trading slightly higher after beating q1 real benefit in this kind of each, me, this kind of dynamic on wall street for more estimates. diversified base of revenues. the health insurer is pulling out of five states next year. i think you see that with j.p. morgan chase who is hitting on helpednsulting business all cylinders compared to its competitors. it overcome losses on obamacare plans. j&j also beat just out 10 you see the weakness in the business model of a goldman sachs or morgan stanley which is minutes ago with q1 aps, raising more mono-line in that regard. its full-year guidance or johnson & johnson expected to 6.68 this year. i still think happy days are in front of us for wall street. one of the limiting factors remains that the fed won't allow sachs -- earnings will m&a act unity among the big banks. that's a subject many would be published in about 30 discuss on the political trail. minutes. analysts we surveyed are looking that would help goldman sachs or at 248 on the revenue of almost morgan stanley. laura let's turn to $7 billion. keller who covers goldman sachs. want to turn back to the that is much worse than just three months ago. /their earnings

point earlier about the estimates by more than 50% in three months, and the stock has comparison between morgan suffered as the worst performer stanley and goldman sachs. in the dow jones industrial worse stanley is slightly average this year. david: the s&p overall has than goldman sachs in several rebounded from its february low, areas. and u.s. companies have been reporting better than expected earnings so far. equities trading, both banks have been hit very hard. submit a separate many and joins us. that is something we want to you have been relatively turn back to as we look at this and get these numbers. bearish. a lot of the banks have talked i think three quarters of the about spencers and their better than expected but we really have covering are beating expectations and what you expect at this point? to keep looking at the fixed >> we expect a sizable lead this quarter. income trading businesses and our estimate for the quarter is the equity trading businesses about 4% growth, 4% better that have not done as well. growth than what the street is analysts have brought the expecting. i do not know if that is enough to drive the market higher without a real materialization estimates down but it's worse than analysts were predicting. david: picking up on the compensation issue, they have said they have lowered, the of top line. that is where we have not really seen the sales come in. ratio has not changed. we have seen a lot of earnings. 42% of a lower number is a everyone has cut earnings aggressively heading into the lower pool. quarter. this is what we see every david: you have to worry about a

quarter. downwards revisions, low ratio if you're running a expectations, a little bit of the beat, and it is kind of business. >> we have talked about this like, who cares at this point? many times. ever goingreet firms vonnie: we talk about slowing earnings quarter after quarter. to be shareholder friendly? it feels like they want to be. earnings growth year is the return on equity is quite low. negative and has been for the past -- it will be three where else can you cut expenses? quarters now. if you take energy out of the is going your revenue equation, which a lot of folks out in terms of compensation, that is the obvious place to cut like to do, because that is a bad spot -- we are not in a and nobody who works on wall street will like that. this is a topline recession, we're just seeing low earnings growth. business. what worries me is that earnings growth at this point, they're are kind of like desperation the expenses or compensation moves. expenses were 40% lower in this cost-cutting after seven years first quarter than they were in the first quarter of last year. of cost-cutting. the ratio stays the same because revenue has come down that much. it feels a little bit long in the tooth. they managed to cut what i would like to see get more positive, what we may be seeing inklings of is more non-compensation expenses 6% compared to last year and 49%

demand. jon: a lot of attention is being lower than the fourth order of paid to topline revenue growth. last year but you still have the same problem -- revenue came in the last couple of years, down. this is a statement from lloyd blankfein -- earnings have been driven by it's pretty telling. improving margins, but in 2014 that picture got a lot worse. a percent of sales coming down says the operating from a record 9.7% in 2014. environment this quarter presented a broad range of challenges resulting in headwinds across virtually every do you expect that trend to continue? one of our businesses. that these guys cannot improve he sees problems across all of their units. margins even in a bad topline just erase lloyd environment? savita: i think that it is a case-by-case basis, but a massive surge in margins that we blankfein and plug in wall have seen since the crisis, driven by cost-cutting, that is street ceo. every single ceo has said the long in the tooth. we are seeing costs come back same thing, it's the online. environment. look at u.s. labor. we are seeing serious inflation is it a cyclical environment or something else happening? >> you compare jpmorgan's in the lower end, kind of an results at around $5 billion. unskilled labor force. that is a big source of cost universal big bank measure for companies. it is hard to keep margins expanding of sales do not improve along with that. and is in all sorts of

businesses and has a big deposit the market story is not base. this seems to be working. for every other firm on wall going to improve, get specific the first quarter was for me -- which industry groups will suffer the most? savita: where you have the most extreme we difficult. risk of compressed margins is sachs to be to consumer discretionary -- morgan stanley in debt trading retailers, restaurants, hotels. by a small amount is shocking. if we are all making more money, you would think hotels and retailers are doing better, but they actually tend to have -- there largest cost is with i would have thought that goldman sachs would figure out unskilled labor. how to hit it out of the park. 6.4% in average equity. they cannot replace man with machine. >> i think it's tough for the that is where we see the biggest risk of increasing margin banks right now. pressure, and that happens to be this was a bad quarter. it might just be -- we had five one of two sectors that is ipo's this quarter and normally trading near peak margins. you have 35. scenario, icase >> volume was way down as well. vonnie: we have been looking at think the next move is going to the government clamping down on be margin compression for some of those industries. m&a activity. david: what does the market tell us about where the s&p is sheet is wheree headed? journalists are always

it gets nailed. skeptical, and bears sound better at talking up. but the bears are capitulating. net futures positions held by two executives are having an excel i an egg salad hedge funds are in white. sandwich of the diner and they the s&p is in blue, almost incidental. are being consumed now. oneorman looking at a 1/4 the important thing to watch is this part of the white line, which shows you hairs are selling off their short off? positions at the fastest rate we tothis a structural shift have seen since 2012. link income statement realities they are capitulating, it seems. will they join them anytime with the balance sheet realities? >> this is the central quay soon? savita: that is a great question. question facing there's capitulate and buy the market is not a wall street executives. great signal. james gorman thought it was what you want to see everyone structural and we will get out of the table, out of bigger in brokerage and fee related businesses. at has not really paid off yet. equities, fearful, in the fetal position, and that is when you buy stocks. dumbe: is it smart money, at goldman sachs and jpmorgan, they think it's cyclical and we will just ride it out and the money, a short squeeze? savita: i do not think any economy will get better and we will be like we were in the old days. tom: if we get better gdp, does particular group is smarter or dumber than the other, but what it ride to the rescue? you want to see to get bullish >> i think it does. on the market is the super berry

sentiment. -- the super bearish sentiment. the economy is improving. go to the s&p 500. there is less competition on wall street. there are fewer banks able to there are certain things you call quality stocks that are cheap right now. savita: within the s&p are great service the needs of companies across the world. i think they are well-positioned opportunities, and one is to do it. multinationals. to slowlytill growing everybody hates them. we have all bought u.s., for these firms. domestic. we have heard this for years and kind of ait with a years, and it is generally working. shocking market volatility in but now what we are starting to the first quarter, they were not prepared for this. see is some inkling of we will not go back to the improvement in emerging markets. our emerging markets strategist 16%. >> never. just upgraded his call on e.m. the banksson to buy after five years of being is because they are better bearish. this is driven by better capitalized and can potentially currency situations, more return more cash to shareholders. likelihood of reform. they have never been as capitalized as they are today. so there are other pockets of strength around the world. from that standpoint, the some of the consumer stocks that balance sheets are a reason to buy rather than sell. >> but they are not shareholder have exposure elsewhere can do a lot better. friendly. too much goes to compensation. servetus super mania and is this a slight is going to be with us for the hour. donald trump is counting

embarrassment for lloyd blankfein on a personal level? on his home state to provide a >> i don't think if he can be big boost to the republican embarrassed. nomination. he has a big lead over ted cruz and john kasich in the primary. that would give him momentum the goldman sachs exceptionalism that we used to know may be a thing of the past. david: this has been an going into five key contests next week. exceptional discussion and thank you to laura keller and bob hillary clinton, who represented new york in the senate, is cohan. hoping to increase her lead over bernie sanders, who has one bank next, netflix may run seven of the last eight primaries and caucuses. attack by the, an into an international dilemma but what does this mean for investors? ♪ telegram. a car bomb blew up, and it was followed by a gunbattle. 28 dead, three hundred wounded. the taliban has claimed responsibility. brazil past president, de la rue roussef, says the fight is only beginning. the lower house of congress voted to put her on trial in the senate. the senate could temporarily

remove her from office with a simple majority vote. global news 24 hours a day, powered by 2400 journalists in more than 150 news bureaus around the world, david. david: after 15 years of being shut out of global credit markets, argentina is returning with the bank. katia porzecanski joins us next on "bloomberg ." ♪

hewlett am here in the

packard enterprise greenroom. -- chairmanbi sheila bair will be with us. you are watching "bloomberg ." the largest health insurer in the u.s., united health, beat estimates. it offset losses on obama care plans. the company warned last fall that it was losing money on affordable care act fallout. it plans to withdraw from at least five states next year. public he traded tobacco, has raised its forecast. philip morris is protecting the strongest dollar would not -- vonnie: it is your bloomberg will not hurt them. business flash, as we look out first-quarter earnings missed estimates. china wants to take control of over beautiful new york city this tuesday morning. the country's most popular fast verizon is going to have some food chain. led by china competition in the bidding for yahoo! ypvate equity firm tpg and

investment corporations interested in taking a majority brands china holdings has made -- have made offers. business was includes kfc and pizza hut restaurants . yahoo! has said yesterday as the deadline for companies waiting we arein tech go, to buy its web operations. looking at netflix who shares our plunging. serabeing investigated by the sec and federal prosecutors. the international subscriber growth will be weaker than what's expected. online tvs largest pay network expects only to add theranos -- the country has been 2 million users that quarter compared to the 4.5 million investigated by multiple health authorities. added at the start of this year. there have been reports that technology may not work for it. , the world'sflix cory johnson is with us now. network, reports we knew going into this that the slower earnings, especially international growth was key to netflix. they say they had problems. outside the u.s. cory: turns out people around that is your bloomberg business flash. jon: thank you very much, vonnie the world don't all speak english. quinn. they don't all watch the same throughout a decade of isolation, argentina plans to content and that's an issue with this company.

sell as much as $15 billion in area theses are so big bonds today, the biggest emerging market offering debt sale since at least 1999. the money will help pay $10 company is burning through hundreds of audience of dollars every quarter. it's a profitable business. billion to creditors. we bring in the emerging markets reporter, catch up with the can skate. these rising losses in terms of free cash flow, they need to pay porzecanski.a for all that stuff. also, savita subramanian. guidance,e out with how do we expect -- there were questions about the impact of a price hike and what it could mean to subscriber katia: they are building at a growth domestically. nice curve. year, ahave a three vonnie: as soon as they start five year, a 10 year, and a 30 year. we do not know how much they are making domestic content in these selling, but basically the countries which i'm sure they pricing will be on the low will, the subscriber growth will continue. handle for the five and a cory: if it's good. three-year, up to about 8% for the 30-year. -- lexis had a real in a fit they have to issue a lot because they have to build out the curve has had a real than a fit -- . they do not have a curve right now because they only have defaulted bonds -- rather, they netflix has gotten -- netflix have bonds that were issued a debt restructuring for 2005 and

says gotten "house of cards" and 2010, and they defaulted on those. you cannot even look at the others shows to appeal to many different countries. yield for reference there, so they really need to flesh this with the hits they have had, it out. has helped them be successful about $10 billion of the amount but hollywood is hollywood. they are going to issue will go theay off holdouts from the hits don't always keep coming. david: if you have to have 2001 default led by elliott management. david: -- jon: on pricing, how do they ofuse of cards" for each price this? do they say 7% is fair on five-your money, or did he look these countries, that raises your cost a fair amount. at the p or group, the it's going to be tough for equivalent rating out west? katia: they are looking at this company. spectacular job argentina specifically. they have very low debt because technologically and with the they have not been issuing, and content. this growth comes at a tremendous cost. they have to try to figure out how the economy is going to grow they've got years of cash on hand. . they are in the process of doing >> how much of this drop in the several reforms, which should put the country on a good growth path. stock price is fundamental and how much is we knew going into but it is pretty difficult. the price talk at the beginning the year that netflix is one of was very favorable. the most crowded stocks in the the investors i was talking to s&p 500? are saying this is a bit of a everyone wanted to own up by the

end of last year because it was one of the best performers. generous deal, attractive to me. may of the stock reaction but then yesterday when they adjusted the final guidance lower, they said, hold on, you be positioning rather than -- cory: this is one of those are not that great. you have a history of defaulting companies were you need to on average every 25 years. separate the business analysis we will see how they price and the stock analysis. this is a stock that swings today. there is a ton of demand for dramatically on earnings, way up this. they are part of the global her way down. index, and there is very low weighting on that. that drama is evident. if you are a real money it was one of the best performers last year and one investor, you need to load up to adjust your gp index. david: matt miller, here is your of the worst performers the year before. when we talked about opportunity to get some yield if you want to get it. david pointed out in the amazon bring out its own streaming service, is there morning meeting, and katia just enough talent for all of this content to be made? storiesdid a series of backed him up, that there is a ton of demand for this. it is way oversubscribed here around and amazon show and you can see here in this chart amazon wanted to shoot the show , 7.5%entinian 10-years in los angeles to get better actors. amazon's for every yield. it has come way down over the show to be someone's favorite show. when you are consuming it the last year or so. way you consume shows when they

the problem is, as you pointed are streaming, you binge watch, out, jon, greek creditors have it has to be your favorite show to draw you in. better talent, better writing. been demanding more yield for their money lately as well. yahoo!?yellow pages and if i switch over here and show swallowingen know is you a chart of greek five-years, they shrugged off their status. -- the men know the minnow is here they were going for 6%, and swallowing the whale. now it is trading at 11%. david: i wonder whether or not the oversubscription, but also the speed of this market, tells vonnie: i had a conversation us something that is going on in argentina. katia: they wrote-showed all with a ceo and he said these companies are desperate to have last week. rode-showed all less a structure that will take on google and facebook. a potential verizon/aol weaker they went to london, combination might work. l.a., boston, washington, new what's interesting about york. they sent some of the best , in traditional people to talk. you have to remember, these guys in the administration are all former wall street. they know exactly what to say and who they are talking to. business, there is a number one and a somewhat smaller number

at new chief of staff was two but in technology, the number one is usually 10 times bigger than the number two. we see that in search engines jpmorgan not long ago. and software. david: isn't that the network they know how to sell a bond. vonnie: i want to know why the effect? cory: exactly. david: it's hard to break in. yield is so low. when you are looking at brazil above 12%, 13%. katia: brazil is really bad i will be curious to see placed right now. what comes out of this. it is almost not fair to look at brazil when comparing to argentina. you are right. test, a face. there will be a question as to what kind of bids come in for yahoo!. david: thank you very much for you have face in this new -- you being with us and thanks to cory johnson. have faith in this new : coming up, the former fdic administration. they are very well leveraged in chairman sheila bair weighing in this economy. right now that is the case. on banks. , oure: katia porzecanski banksl talk to the themselves, but worst-performing emerging markets expert. stock on the dow this year with thank you very much. the numbers to match, goldman sachs down. ♪ next, johnson & johnson beat estimates on stronger drug sales. with the cfo, next on "bloomberg ." ♪

david: this is "bloomberg ." johnson & johnson shares are up pre-morgan -- premarket after reporting earnings. dominic russo, the ceo, joins us from their headquarters. thank you for joining us, dominic caruso. dominic: thank you for having me this morning. weid: when the news broke, saw that you beat earnings. take us below that. tell us what is going on beneath the top line numbers. dominic: overall the business continues the moment and we saw at the end of last year into the first quarter, so we are off to a great start to the year. we have had a very strong quarter with all of our jon: it's the worst-performing

stock this year, goldman sachs momentum. picking up first order profit dropped 50% and revenue plunges. pharmaceutical sales have been very robust. the pipeline continues to build, which is going to be good for european equities climbed to a three-month high. continuing that strength of excellent performance going netflix stock falls off a cliff forward. consumer business is making investors are rattled after they steady progress, always improving its margins. forecast weaker subscriber growth abroad. presidential candidates are we are pleased across the board that all businesses are making a final push in new performing well, and we will york's primary today. continue to see that throughout the year. david: start with pharmaceuticals. i think that is almost half, 45% of sales. remicade has been a big factor in that. to big a threat is that continued growth of that part of your business? it is 8:00 a.m. on wall street, daniel: we gave guidance this morning., overall sales 8:00 p.m. in hong kong and 1:00 p.m. in london. guidance, which is consistent with hours, that did not assume willa similar competitor goldman sachs is getting all the attention in the last 30 minutes with an ugly report for the first quarter and the stock is down in the premarket. enter the market in 2016. we still remain with that david: it's a very busy earnings assumption, primarily because we believe we have strong week in the united states.

intellectual property that protects our product. this hour, we will talk to we are not assuming a launch this year. sheila bair, the former fdic chair and talk to her about the david: as i understand it, these living wills we heard with the banks. vonnie: with us in a moment is drugs necessarily have a half-life, so you have to replace them. the president and chief invested what do you have coming down the pipeline? dominic: there are many drugs in -- investment officer. the pipeline that will replace let's get a check on the markets. remicade or any other products equities continue to rally that use patent protection. in london. it is a natural course of we are about five hours into the session. they are upres, business in pharmaceuticals. we have 10 new products that we are filing between now and 2019, each of which have over a $1 about 50 points. billion potential. the story is the banks. there is a strong pipeline for the future. vonnie: what is your plan for excess cash? never mind other asset classes, will share buybacks be the main let's go straight to matt vehicle? vonnie. good morning, miller. goldman sachs was just out with numbers, the worst performer in the dow this year. overall our strategy has been it's down about 1% in the premarket after reporting a 60% consistent, and will reward shareholders significantly. it starts with our dividend. drop in first-quarter profits. revenue fell to the lowest since lloyd blankfein took the post we pay an exceptional dividend

over 53 years. back in 2006. it fell 40%. we then want to invest in m&a, but at the right price with the right partner, the right its way under the $6.7 billion valuation, at the right time. we were looking for. until we do that, we are happy the shares are down 12% year to to return even more cash to shareholders, and we are in the date into today's session. middle of a $10 billion share buyback. right now we are about 25% of all the other bank stocks that have come out have either been the way through that $10 billion unchanged for gainers. share buyback. david: tell us about your consumer business. the firstchs would be that is heavily dependent on the emerging markets, and how bank stock to lose on its earnings day. netflix shares are getting vulnerable are you with the absolutely destroyed in the volatility that we have seen? dominic: the consumer business premarket after disappointing international subscriber additions. yes,nues to do well, and, it is down almost 9%. after the bell last night, it need every single q1 metric but it not only is very significant million newt only 2 in emerging markets, it is actually a great opportunity in emerging markets. although we do see some slowdown in economies in emerging subscribers and the street is looking for 3.5 million and the markets, it is very clear that shares are already down 5% this consumers in emerging markets year. ibm is falling premarket. want better consumer health products, and they are willing it forecast disappointing the to spend for premium products like -- for premium products in and has suffered a a consumer space.

we are thrilled with that business, and we think it will be fantastic for us as a lead in four year sales slump and is attempting to move its business our emerging markets growth. vonnie: what do you think about into the cloud. 16 straight quarters of the inversions? are they good for the u.s. economy? climbing sales cannot be very should they be allowed? dominic: the topic of helpful for investors. unitedhealth group is out convergence is about whether or trading higher after q1 profits not our corporate tax system needs to be revised or it beat estimates. everyone concluded that it does need to be revised. it is making news because it's unfortunately, it may not happen pulling out of five states next during this political season, year where is losing money but a territorial system, a because of obama care. lower tax rate, and renovations -- that is what really matters. says it's consulting business that is what we like to a focus our attention on. have helped overcome those losses. david: thank you very much. is only a 34 states and cfo dominichnson it will be less than 30 next year. j&j is another health care stock caruso. ♪ show me movies with explosions. up after beating the street. it raised its full-year guidance. it expects to earn as much as $6.68 for the year. the street was looking for $6.54. the focus is on banks. all of the actual movement is in non-bank stocks today.

it's a big earnings day and we are getting into the heart of earnings season now. jon: likewise in london and across europe. l'oreal is another one that is higher as well. the focus will be on goldman sachs for most of wall street. iero, fromteve cucc asset management along with michael moore in london. we either start with the fact that it was abeat, the fact that profit was down 60% or we look at the trading revenue numbers. >> i think you start with the trading. you had lower legal expenses, a couple of one offs. overall, it was a costs story on the beat but on the fixed

trading, they were down a most 50%. you saw some of their peers down in the teens percentagewise. this is significant underperformance in that area. in thes expected that businesses goldman is exposed to an predictive it would be an ugly quarter. jon: people engaged in expectation management. we got nothing from goldman sachs. should they have guided things a little bit lower for expectations? >> they tend to not guide publicly the way the more commercial banks do with these conferences. message have gotten the and brother estimates lower. show me more like this. for them to beat like this when they put up a 6% roe, analysts show me "previously watched." knew there was ugliness coming. what's recommended for me. x1 makes it easy to find what blows you away. this was a very poor quarter in terms of returns for them.

talked aboutin call or go online and switch to x1. challenges in every single one of their businesses. only with xfinity. you saw in their investing in lending line, he was down more than 90%. we came into this earnings season, we were expecting an upside to prices. who came out on top in the least ugly contest? >> jpmorgan on the revenue side seemed to hold up better than most. all the others are a cost-cutting story. bank of america cut costs and promised more. morgan stanley yesterday brought down headcount. across the board, it was about cost-cutting and trying to show investors that you can weather the storm. i don't want to over the i'm johnny a from simple five but i want to understand -- is this a trading story? beautiful city of london. you look at the range of banks it's beautiful on the markets as well. ftse has posted a high as with wells fargo heavily into retail and you have goldman

sachs on the other extreme, is this where trading goes? well. >> i think the market the worst-performing stock on the dow in 2016 is what matt miller is looking at. environment has been tough for all the investment banks. joining us from radio is i also think the response has been the vliet to focus on cost cutting. tom keene and still with us is the bank of america president. individually, that might help reach company maintain their the boston federal reserve otherwise higher robert margins but collectively, it's what the president said in his view, the economy is strong and fed is trying not to see in the fundamentally sound. >> i actually think because the economy. economy is stronger and i think if every company acts as cost cutters, we will not get the the economy is fundamentally growth in spending or growth and sound, that we will have the investment the economy needs. bank, youyou are a conditions were gradually raising rates faster than financial markets expect it makes sense. have to return a certain amount of money to cover your cost of it struck me that he is capital. we have a chart to compare the banks. wells fargo has the best generally thought of to be a dove. tom: he is in there were jokes made this morning about hawkish doves and dovish hawks. return on tangible capital -- tangible equity up 13% and j.p. morgan chase was in double it is a blur right now.

digits at 13%. it's a schizophrenic market and morgan stanley was recovering so you see it in the dot plot. it's headed back toward double digits. goldman sachs went the other direction. when i put the print in here, we will see it go lower. are they coming down or is the goldman sachs is getting down there when it's return on tangible equities with banks red line coming up? vonnie: we listened to him but like citigroup and bank of america. that's not a place you want to he is not one of the main be as a wall street bank. david: what about the return on players. >> i think that would be the big surprise. equity? nobody is positioned for >> it's the biggest question excessive hikes this year. there is for these ranks -- how if you look at valuations, what do you stay above 10%? is expensive? goldman sachs has been above 10% utilities, high dividend yields, stuff that gets clobbered when over the last 10 years. they hike interest rates. my sense is that that would be this quarter, they are closer to the big surprise to investors if 6%. we get a more hawkish read than that is not going to cut it and morgan stanley has set a goal to what's in the numbers. david: i thought what he was get to 9% by the end of this year. they have taken a long time to saying was don't be too get there. surprised. this is why the tanks are under he is keeping open the options some of rusher and why their stocks are trading below book -- book value.

of not going in the direction of no hikes. tom: it's confusing and i would they are not getting the returns convey it differently than the that investors need. whatit's hard to judge rank of england where there is a goldman sachs is doing fair amount of clarity that focuses on inflation dynamics premarket. quarter, the than they are in guessing the real economy. reserve isderal worst-performing stock on the dow. anything that tells you driven by a fed that told us to investors will revalue goldman look up rod. the market is looking abroad and sachs later on this year? that's why it is sowed bush when >> i think it will depend on the outlook for trading. they look at places like japan and for the markets. and the eurozone. they are so tied to that the prospect for growth has been cut so if the market looks abroad, you cannot have the business; -- and it consumes a lot of capital. likes of fed presidents coming if trading looks like it could bounce back, that could change down on this. things for them. it's whether the rate hikes get there are also investing in pushed too far out and that a -- lending businesses. and then they have to get hiked you saw close to zero in revenue this quarter. more aggressively. that is market dependent. will be with the what if it is a market that has to handle a series of hikes? vonnie: there is a new focus on rest of the year looks like because the first quarter is usually the best for trading. em and countries outside the it was a rough one this year.

u.s.e: what about the u.s. the dollar index has softened. dollar? it has declined. tom: the markets are doing some how is that impacting u.s. banks? of the work for the fed. is it hurting them? would you agree? >> in the beginning of the year, sure, every source of capital we had a dollar that was a one-sided trade. has got more expensive. everyone was convinced it was credit spreads have risen and divergent central-bank policy ipo activity has slowed to but the dollar went higher and almost a standstill in the first quarter. higher that would be a disadvantage to us-based it's tougher to raise capital. companies and advantage to otherwise. margin, we have seen some at the beginning of the year, the flood -- the fed linked to tightening this year without the fed doing anything. does that mean that the -- blinked. fed can go next time around like june? >> our view is that they go in weaken andstart to june. the data is strong enough and we think what the lag, this will they should go one more time this year. i think that would still be more help u.s. multinational banks. than what the market is they will start to do better expecting. going: when is the market because of that. thanks for being with us. to come into line with that? is downsachs premarket we have had a steady incline

around a half of 1%. vonnie: let's get a check on the very slowly. is the target is news. clintonclinton and bill below where we are is that the chappaqua voting. market fell off a little bit ahead of june as we digest that we might he another tightening. andve also got brexit as the new york state primary and we will follow it all day long and there is one of the potential negative headlines. once we digest the fact at the contenders for the democratic nomination, hillary clinton. economy is strong enough to she has lost seven of the eight handle another rate hike, that could put the market on stronger last primaries to bernie sanders. the democratic presidential footing from a fundamental perspective. it just feels like we are front runner is hoping to regrade -- read gain the upper running on fumes a little bit. tonie: is the economy able hand. bear a rate hike? it has been quite a run. donald trump is counting on his home state to provide a big boost for the republican nomination. he has a double-digit lead over john kasich and ted cruz in new york and a win would give a momentum going into the northeast context next week. the markets are clambering the taliban is lawson attack in higher. afghanistan. it has a negative feel. it's like anxiety. there are reports of hundreds of casualties. a car bomb blew up outside a it's a wall of words. david: and a confusion. government security agency in

kabul and then gun men stormed tom: i would agree. the compound, 28 ed and more than 300 wounded. it's a serious issue and it's -- 28 dead and more than 300 wounded. one of the most bull markets and one standard deviation out on longer term trend is down 19 thousand 600. you're not modeling that for jon: next up, the brazilian this month? >> not that big of a drop but we president dilma rousseff remains uncertain as she foes -- faces a could see massive volatility. senate vote for impeachment. in the first quarter, we saw the we will look at the vice eight biggest reversal in the market of all-time. president next. ♪ that is a big deal. lots of funky things are going in and lots of reversals in this tells us something about a breakpoint. david: we are waiting for goldman sachs earnings. vonnie: here is first word news. president obama is at odds with senators in his own party over a bill that is angered saudi arabia which would allow saudi arabia to have a constable in u.s. ports.

the third ranking democrat of the senate chuck schumer -- matt: we have goldman sachs earnings out, revenue at six point $34 billion. that mrs. by a longshot the $6.9 billion we were looking for. almost $7 billion that analyst were looking for. keep in mind, that was brought down by 52% over the last three-month. analyst at the beginning of q1 said they expected five dollars in earnings and now they are expecting $2.48 and goldman sachs is coming out it $2.68. we are getting key numbers. equity trading will be important.

vonnie: you are watching "bloomberg ." johnson & johnson reported first-quarter estimates that

beat estimates. the u.s. blood testing startup says it's being investigated by the sec and federal prosecutors. it promised to upend medical diagnostic is is with an expensive test using just a few drops of life. the company has been investigated by multiple authorities and there have been reports that its technology may not work. argentina has been shut out of the global credit market for 15 years and now it's returning with a blockbuster sale. it want to sell as much is $15 billion in bonds today. that would be a single day record for a developing country and would mark the end of isolation that followed their 19 -- their default in 2001. brazil, president keeps fighting and impeachment process.

she is speaking out for the first time since sunday's vote. >> what i find interesting is that there are no accusations against me of the misuse of public money. there is no accusation of enrichment. i would not -- i was not accused of having bank accounts abroad. that is what i feel i suffered an injustice. those who did practice illegal acts and have bank accounts abroad are the ones presiding over something as important as an impeachment of a president of the republic. brazilian assets have rallied much of this year. it may be that she will be impeached. we go to sao paulo with more. this could get messy because she will hold on with her fingernails. can she? >> she still can hold on. that before it passed in yesterday, she said she will fight every step of the

process. she will not give up and will not just resign. we are waiting for her to file more appeals and keep fighting this process. she does not want to go. about hervery much departing for the markets but it will be about the man that takes control of brazil and takes over her power. what do we know about him? he has been her vice president for both her terms. they have not been on great terms for a good part of maybe the last two years. he has started to outline what he would do if he were to take over in the economic side and a few names for ministries and that has picked up this week after the impeachment passed in the lower house. jon: thank you so much. this is fascinating, the idea

that a market rallies on the potential that the president leaves. the underlying fundamentals of brazil and whether someone can change that. it wouldn't be the first time that markets have overreacted. we will find out what happens in brazil. are we looking for ways to play brazil? matt miller has more on what analysts are saying. what are the opportunities? matt: a lot and a lot of them have played out. this market has been ripping faith all year long. worst performing assets in the coming weeks are going to be down there. you cannot talk about the turmoil in brazil without looking at the real. it is the best-performing stock 12inst the dollar, up about or 13% so far this year. it is a real winner.

mike moran says it will continue to gain amid policy changes he expects following the impeachment. if you have an appetite for risk and these are very risky assets, he says goal long on petrobras and banko do brazil bonds. citigroup is recommending that trade. petrobras, it's said to go after the dirty year bonds. just the 30 year bonds. you have to be ready to take losses because things are volatile. citigroup analyst says petrobras may have the biggest upside from a regime change but has been embroiled in scandal. there is the biggest brewing company in latin america. it could have a lot to gain. ubsd analys team says it's a by no matter what. ev is a beacon of light in a

dark stump of the company mostly has beers. they say no matter what, this is a good buy because people drink whether they are happy or sad. the principal person behind it has been pretty successful. he partnered with warren buffett. 3g has done well. matt: are there still craft beers? i thought the big companies bought the craft beer rowers? jon: we will drink all of the beer in london. up, we will talk about central banking. the federal reserve bank president of boston says the market is too pessimistic on the

rate path. the biggest douglas emmett like a hawk, next. -- the biggest dove is summing what a hawk, next. ♪

david: it's time for bloomberg trends, look at the top stories. you can find these on readgo. you want to look at the boston youpresident questionjon: listen to the fed chair janet yellen and stanley fischer but when a very dovish policymaker starts sounding like a hawk him i suggest you listen. >> i think because the economy economy is and the fundamentally sound, we will have the conditions where gradually raising rates faster than financial records expect would make sense. jon: i think this is important

for the markets. the number one reason is they told market purchase up and clearly to look at what's happening globally. you've got it dove saying it's important to have a look at the u.s. to message economy and markets should reflect that but currently they don't. if you are an investor, you are wondering where to look at david: you really don't know where to look at it they are saying all options remain on the table. it turns out vw is bogged down in their investigation because they have to go through a bunch of laptops. there was a conscious effort to cover this thing up that extended to a lot of people in vw. they say they will

comment in the second half of april. this was put in deliberately? david: it appears to be. vonnie: hasn't made as much of an impact in europe? of course and european car sales were out one week ago. vw quite clearly was you -- was losing market share. you need to split out what's happening with them as unit of the vw group it the unit is not doing well but the group is still doing pretty well. it has affected the unit more than the group. companytation of that is very much tarnished by the events of the last year. vonnie: my bloomberg trend is someplace you should be going if you want refuge. it' fx strategy. wcrs, where you can go to

find different variations on different returns currencies are giving you in relation to the u.s. dollar. if you look at the indian rupee, it is strengthening. it has proved more profitable over the last few years. david: a little arbitrage on interest rates in those were some of the top stories crossing the bloomberg. coming up next, we will have breaking numbers on housing starts in the united states. ♪

under an hourjust

away from the opening bell and sheila there will be joining us to talk about banks in the living wills quandary. we go to matt for some breaking news. i try to cover as much as i possibly can. we had housing starts coming out in about an hour. this goes back to 1996 and we are at levels we have not seen since 2008. we are looking at a disappointment. point -looking for one million but it's lower. housing is had a rough time and there is a lot of housing data out this week. we've got holding permits out which are lower than the street was looking for. we were looking for 1.4 million

and only got one point 806. you only get a building permit if you plan on building a house. that's good for the economy. it's a good forward indicator of missed estimates there. that's not good for housing stocks. building permits are down 7.7%. if you are too bummed out by this, let me max out this chart and show you how far back we come. starts were down here. this was after the worst financial recession and the great depression. we have not seen levels like this since we have been measuring the data. theirst we're up out of it a real miss on this ego data for u.s. housing starts. jon: you said this is a very forward-looking data point.

i would say look at what's been happening with mortgage rates over the last month or so. they have been coming down and do you expect them to feed into better housing data in the months to come? i wouldn't know the answer to that. i am not an act, missed that i'd don't think mortgage rates between 4.25% and 4% flat make a difference. i'm buying a home like my first one, i'm happy to get hold of it. i would pay 5% for new house. i don't think the average american is really thinking about how much that 75 basis points or 1% will affect him or her over the next 30 years. is that fair? david: i tend to agree. i think it's affordability and wage increases. matt: i would pay 6%. jon: i can tell you what you and argentinian debt.

argentina plans a $16.5 billion debt offering. magicmber 15 was the number. we are now learning they are planning a 16.5 billion dollar four-part offering. argentina, 6.5 billion dollars of 10 years at 7.5% and 2.75 billion dollars of 30 years at eight are sent. i will bring you more in a moment after i take through this. 16.5tina is planning a billion dollar four-part debt offering. president obama is at odds with senators in his own party over a tilde has angered the saudi arabians. it would allow saudi arabia to be responsible in u.s. courts in attacks. the third ranking senate

member supports the measure. possibilityn up the that individuals in the united states can routinely start suing other governments, then we are also opening up the united states to being continually sued by individuals in other countries. vonnie: the president arrives in saudi arabia tomorrow. in ecuador, rescue crews are running out of time as they search for people trapped from the killer earthquake. more than 400 people were killed and 2500 injured area the 7.8 earthquake hit the pacific coast. in china, there is an anticorruption drive restricting business act of eddie's of families of business executives. entities ofss act families of business executives. of families of

business executives. on: crew out put -- crude output went high but workers are on strike today. oil is above $40. doha fallout hit sentimental's. actual for duction cut. usually they do three billion barrels per day. production down to $1.1 million per day which is 60% down. it has recovered a little today on the third day of the strike but they are at about half of what kuwait usually produces. that would get rid of the global supply glut. >> it's going to be short term.

by the end of the week, we will have a resolution. find a way to establish other production. the bigger point is that we are beginning to see a lot of disruption that are triggered by low prices. governments have less money to spend and cannot keep workers happier. we see disruptions in venezuela and nigeria and now this disruption in kuwait. jon: it's a classic political clash. what is happening in saudi arabia? >> it is a complicated situation. the government is trying to reduce subsidies and spending. it also knows that if it does it will risky, it

alienating the population that arabiame used to saudi ruling the country. it is problematic. quite clearly, a floor has been put into the crude market. this i learned about listening to your radio program at 4:00 in the morning. you are talking about brent. if you look at wti, we can also see what's called backwardation. spread see from this that the front month contract is for more than the

second month contract. vonnie: are you sure that's not north america? matt: it looks like a map? it's not. ion which youat don't normally see. forare now willing to pay -- pay more for oil now because it's getting harder to get. what do you think about that signal? >> one of the reasons we see the brent market this way is we are about to [indiscernible] the summer is good weather. weather is good for maintenance and production comes down and we have a bit of a blip or production will come down.

i have been talking to traders who are surprised and they think that in june or july, that backwardation will still cause us to overproduce. jon: thank you very much. i left because of the weather. david: the weather is beautiful here. you should come back. let's turn to johnson & johnson who beat earnings-per-share estimates as morning they met revenue expectations with $17.5 billion in sales. we spoke to the cfo earlier and he discussed how much it values its shareholders. >> we pay an exceptional dividend, over 53 years of continuing to increase the dividend. we want to invest in m&a but at the right rise with the right

partner and write valuation at the right time. until we do that, we are happy to return more cash to shareholders. more is ourfor senior health care analyst. what to these numbers tell us about johnson & johnson and the health care industry and pharmaceuticals? >> i think j&j has been growing at a fast pace, eight .5% through their pharmaceutical divisions. speculation that areas inbe acquiring prostate treatment. they have some segments that have historically been low growth like hips and knees. they reported 8% growth in the u.s.. that raises the question, maybe

more people getting coverage in the united states through the agingand population, maybe we are starting to see growth. the united states, 7% this quarter, way above any geographic regions stood out. that's the last couple of quarters. david: what does that tell us about downward cost pressure on medical costs. >> it says the population growth has to help offset any pressure on hospitals. the of formal care act initiates this shift to value. there is going to be pressure for hospitals to say we cannot keep paying the same price we were. andave seen it with valeant other different companies and with the election, you have to generate better outcomes and volume growth. vonnie: is the answer consolidation? it's getting more difficult for hospitals to merge? >> that's true. antitrust is a big concern.

it might be antitrust with health insurers and that's an .ncertainty with anyone with the treasury, there are concerns now with pfizer and allergan that the company that did an inversion completed their deal. we had earnings today from united health care. >> united health is done a great job reinvesting in some of their divisions like medicare. the aging population in the united states is a key driver. investing may have cut their earnings. it will help drive their earnings growth over time. that's one way they have done a they have a

consulting division that helps other insurers and hospitals shift to quality care. thatis their secret sauce is a unique competitive advantage. vonnie: in overall consumer spending, the health sector spending is coming down. it's a bit of a relief to the consumer. does one offset the other? >> one of the challenges is that as you increase coverage, you will have more people using the health care system. as you have seen with the exchanges, a lot of these folks are getting covered but they are not the younger patient population. they will use the system more. that will drive some of the health care spending. it's not going to shift from consumers. david: united health care just announced another state they are pulling out of. does that have a material effect

on obamacare early on? >> the optics look worse than it is. united health is a household name but they were more of a slow-moving player. they went to 34 states this past year but in 2014, anthem serve one in three americans. those companies are more relevant. and thell important obama administration takes a hit as they get out of the states but still, there are at least two plans and most of the state a were operating in. in some of these states, people may go down to one insurer in that it increased rices for consumers. it's definitely a negative, is just how many more they will pull out of next year. david: we will keep following this, thank you very much. coming up, we will talk about living wills and their impact on banks with former fdic was noheila bair

president of washington college. ♪

matt: later today, bloomberg will have the details on yahoo! and intel earnings when they report after the bell. vonnie: verizon will have some competition in bidding for yahoo! has madequity firm tpg offers. holdings is an advertising

business of what used to be called yellow pages. yahoo! said yesterday as the deadline. the world's largest publicly traded tobacco company has raised its forecast. philip morris is predicting the stronger dollar will not hurt as much. the company says the kleins and smoking may ease. misseduarter earnings estimates and volkswagen investigators are looking into the admissions testing scandal and are being tripped up i dozens of code words. for the words were illicit technology vw used to turn off pollution controls for the cars on the road. vw will not have a complete report until the end of the month. david: last week, federal regulators said five of the biggest u.s. banks failed to persuade regulators they could go bankrupt without disrupting the financial system. does the failure of these living fuel the problems that led

to the two dozen a crisis. former fdic chair sheila bair is joining us now. welcome to "bloomberg ." understand, what is a living will and why does it seem it could use more transparency and the fed and the fdic have tried. they put in more information this time around. it's important to understand there are two different processes in dodd frank to deal with the large institution failing. one is titled 2 which is a bankruptcy process. we are ready matthews that if we had to. 1 title which is the living will requires these financial institutions to show they can go through a traditional bankruptcy process without disrupting the economy. that's a harder thing to show. david: explain why there are two agencies involved. rulings came up.

why are there two agencies? >> that's in the statute in a speak cause the living will process informs the fdic's resolution process under title 2. it's important for them to work together. here is a lot of asked tease in how to wind down institutions. congress decided to put the primary regulator for the --ding company in charge together and have it be a joint position. david: in general, isn't it a case the fed has had more direct experience with large money center, systemic thanks? the fdic has experience wanting down banks but usually larger banks. >> i don't know about that. we have ensured these large institutions for a long time. we have been a backup supervisors for them for a long time. , the fdicodd frank

resolution authority only applied to the insured bank inside these large financial conglomerates. that created an impediment during the crisis. the stress is usually outside the bank. i think they bring expertise to bear. would not say they don't understand the larger institutions. we have ensure them for a long time. getd: the purpose is to close to where we are not jeopardizing the financial sector. >> exactly. david: is this process getting us there? some seem to think it isn't. >> title i is the living will provision. it says that both agencies plans are not credible, that determination shows that they can do a lot of things. investo ao it

devasting chair of the operations. it's a very powerful tool. it's probably another reason why congress wanted to agencies to make the determination. hillary clinton is talking about that already. if they fail the living will process, they can be broken up through regulatory authority. clinton talks about that and bernie sanders says we have not fixed it and kari sayscatc cash that. have we fixed the too big to fail problem? you could deal with it if you had to, a failing institution. longer-term, you don't want there to be a systemic issue. this process needs to play out. i think the market would drive us and accelerate it. it's harder and harder for them

to make the return on equity. the requirements go up and it discloses some of the inefficiencies to the large conglomerates and you are seeing shareholders great pressure on these large banks to start analyzing whether they would be worth more 20 pieces. david: my special thanks to sheila bair. vonnie: thank you.

having a battle of the charts speed round. vonnie: we just got word that argentina will sell 16.5 william dollars worth of bonds. we are building a new sovereign wealth her. we will not have the final curve settlediday when it's

and starts trading in the secondary markets but this is what it will look like. the 10 year bond will trade around 7.5%. matt: we just learned that morgan stanley will fire more people than it has since 2013. this is their job cuts going into 2013. they were steady and then leveled off and i now coming down. they are one of the only banks showing real improvement from where they were. i think morgan stanley is well-positioned. david: i like vonnie more but i love matt's chart better. you're still my favorite. ♪ we will be right back.

vonnie: global stocks rallying after losses from the failed

doha talks. profit at goldman sachs plunges from last year. tech disappoints as netflix and ibm earnings underwhelmed and shares her in the red in early trading. and it is primary day here in new york. a big test for donald trump and hillary clinton in a state that both call home. ♪ vonnie: we are about 30 minutes from the opening bell in new york. this is "bloomberg ." i am vonnie quinn with david westin and jonathan ferro is in london, . david: we have a lot of earning

news to cover today. jonathan: we are you down to the market opening. futures stay positive throughout most of the session and the u.s.. futures up 38 points. there up around a third of 1%. here in london, we are on highs of 26 points, collet 4/10 of 1%. i will tell you what is happening in fx and commodities -- a risk on mood indeed fx market. in the commodity market, you can see 43.35 on brent. it feels like the crude market has already forgotten the doha mess. now taking us to the top three stories that matter to the market ahead of the open. today we are talking about a rally in commodities. surprise on the upside in the autumn wind, but an ugly read when you lift the lid on them.

he will talk about the tech earnings as well. what a difference a day makes. monday morning, we worry about what happened in doha with crude slipping almost seven percentage points. we wiped out all the losses from those phil talks. ilver to its huge surge. the aussie dollar up by 6/10 of the 1%. the stronger loonie on the screen right now. talking about what is happening in the commodity markets and being more specific on what is happening with crude. are we starting to trade more on demand supply and less on sentiment alone? watch the price action in crude over the weekend, you watched a sharp drop after a no deal was announced. you saw things come back over the course of sunday afternoon and into monday morning could

you see investors pay attention to those fundamentals. we have got the situation in kuwait which could occur tell supply. we are getting to a little bit of supply and demand when it comes to covering supply and demand. entirely at supply issue or a demand issue as well? david lebovitz: are issued has us, the issue has been a supply issue. demand has chugged along at a 4% annual growth rate. it is our view that demand has not been spectacular, but it also has not been deteriorating. if emerging markets have the pressure relief from a slightly weaker dollar, that could push oil highes prices higher as wel. vonnie: where do you see them pushing to? david lebovitz: commodities are difficult to forecast. i think we end the year between $45 and $50 a barrel and

gradually move higher over the course of the next few years. matt has a chart. matt: hillary put this together and it shows the price of oil unmolested in white here. if we adjusted for inflation, you do see something interesting .g. without an inflation adjustment, we're above the levels of anytime before 2004. if you adjusted for inflation, we are below the level we were from 1973 to 1986. it is very interesting that we are this low with oil -- inflation-adjusted oil. excuse me, i was having a little senior moment there. david lebovitz: the most important thing is that lower energy prices are still a good thing for the u.s. economy. the u.s. economy is 70% consumption. energy industry so it is our problem when energy prices fall.

more money in people's pockets is better than less and i think that provides a boost to growth over the course of the year. david: let's move on to the number two story affecting the markets. goldman sachs reporting a 60% drop in profit, the first its lowestpping to since lloyd blankfein took the post in 2006. top line revenue missed. imac or to put you on goldman's earnings, but we talk about this a lot on this program. to what extent is this and expectations game as opposed to a fundamentals and? game? david lebovitz: i think you put the nail on the head. if you put the bar on the ground, it is easy to step over it. you have seen companies lower their earning estimates. you're still seeing them struggle on the top line. this is the struggle playing out over the better part of the past year. companies are beating earnings because the estimates are so

low. y they are missing because revenues are low. i think the expectation game is one that companies are playing right now and that is why stock markets are liking it because stock markets look more at expectations rather than year-over-year comparisons. vonnie: we have had several years of qe in the u.s. and negative interest rates and the rest of the world, where in the world's demand going to come from? david lebovitz: this is a global problem. there is no inflation anywhere. we have 2% inflation here in the u.s.. that looks good compared to the rest of the developed world . inflation is low compared to it was historically. these are all things keeping inflation low globally. i think it will take time for demand take backup. i'm not sure that there is a quick fix, which is something central bankers might want to wake up to.

pumping up liquidity and bring rates into negative territory -- i'm not sure that boosts demand. jonathan: let's talk about what we have from the likes of goldman sachs and morgan stanley. last week, we had a rally. i do not want to take a narrative and a start point and an endpoint for the stocks. looking at the company's valuation right now, that is more than morgan stanley. from the mor numbers, this goldman warns a higher valuation than stanley? david lebovitz: they are cheap. there are lowered expectation rates around the world. these have all been depressing share prices over the course of the year. we like financials from a valuation standpoint. when it comes to individual names, i believe that to somebody who is much better versed in microeconomics as opposed to macroeconomics. over the long run, valuation is the single biggest determinant of total return. financials look cheap.

i do not think negative interest rates are coming to the u.s. and time soon. we could see an estimate pop was stronger growth later this year. david: you say financials are cheap, but there are couple of factors for regulatory. there is a regulatory aspect with reserve requirements and things like that. to what extent does that discount the value? david lebovitz: it absolutely discounts the value. especially uncertain regulation, can cloud the picture a little bit, but this is the world we live in. it needs to get priced in sooner rather than later. i think it is gradually being priced in. we are closer to the end of the story than we are to the beginning. hopefully the regulatory story will be behind us over the course of this year. vonnie: moving on to number markets the third issue are interested in. netflix and ibm both disappointing yesterday. ibm forecast a second-quarter

profit that fell short of projections. both shares are deep in the red in premarket trading. are either of the stocks in your freelance interesting you in anyway? david lebovitz: the tech story has been interesting to us because over the last 18 months, what you have seen investors do is reward companies that are able to generate top and bottom line growth despite a lackluster economic environment. what we are seeing is things cannot improve forever. eventually things slow down and i think a lot of the growth that we saw with stocks like netflix -- that was not going to continue forever more. we're seeing things normalize a little bit. what goes up must come down. we still like tech. those growth sectors in areas of the market that can generate net income and revenue growth and a 2% real economy look attractive. we have seen the defenses and things like utilities being rewarded over the first part of the year. we are optimistic about growth in the second half and these more cyclical shares could receive a pop as the economy

picks up from its first-quarter malaise. david: the quarter in tech shows me have's and have-nots good there are those at the top that have kept growing and there are those that have really suffered. and increasing menk divergence in the netflix and amazon's in the apples and the googles? david lebovitz: you are seeing which of these companies have business models that work. up at this point, it has been innovation with game changing things. now we are starting to see how they function as companies. as an investor, that is what you need to be focused on. i'm not trying to chase the newest smartphone with the fastest connectivity. i want to invest an economy that can manage its top and bottom line and generate cash flow. when you buy a stock, that is what you pay for. investors are looking at them with a more critical eye, which probably is not the worst thing in the world. david: jonathan?

we lost the first part. jonathan: what evidence that you have got that the likes of netflix are not managing that will? david lebovitz: that was not my point. subscriber growth had to slow down eventually. what you are seeing is maybe they are not doing such a good job in managing the company. the divergence that we are seeing is between companies that are well managed and companies that may not be so well-managed and that will cause investors to take a more critical view of the tech sector. vonnie: in general, what areas are you recommending? like lebovitz: we cyclicals and financials and consumer discretionary on the back of higher wages later this year. we are staying away from the stocks that look like bonds, things like utilities, health care. we like some parts of health care, but in aggregate, it is still too soon to tell. is sticking with

us and those are the stories that matter to markets right now. lebovitz.avid k hillary clinton has lost seven of the last eight primaries to bernie sanders, but the democratic front-runner is hoping to regain the fron over hand. donald trump is counting on his home state to provide a big boost to the republican presidential nomination. polls show a double-digit lead over john kasich and ted cruz. trumpwould give donald some momentum going into five key contest next week after president obama is sending 200 troops to iraq. they plan on sending attack helicopters to retake a city from islamic militants. in houston, at least four people have died in massive flooding. struck more than 15

inches of rain across parts of southwest texas. more than 100,000 people have lost power and houston's airport canceled hundreds of flights. we are heading over to matt miller. matt: we have some big movers. i find interesting is that harley davidson shares topped estimates. earnings are increased by international motorcycle sales, but they will increase sales here. i will be speaking with their ceo tomorrow at 10:30 a.m. vonnie: isn't that funny that that was the first thought that came up? matt: the stocks are doing well and i happen to own some of the motorcycles. phillip only sells its products outside of the u.s.. based headwinds over the dollar gains reduce the value of sales generated broad, i'm happy to say i don't smoke whether i'm here or there. that is a product i'm not a user

or a fan of. td ameritrade -- the ceo is going to join us here in the hp greenroom. beer of course, he will coming here on bloomberg television at 3:45 p.m.. that's an interview that you do not want to miss on "bloomberg markets." ♪

vonnie: you are watching "bloomberg ." i am vonnie quinn with your bloomberg business flash. construction on new homes fell about 9% in march. the annual rate of 1.1 million was the lowest since october. it is a sign that it has lost momentum heading into the busiest time of the year.

goldman sachs is reporting a 60% drop in profit as first-quarter revenue fell to low since lloyd blankfein took the ceo post. they are in the middle of a cost-cutting push. they are leaving open positions unfilled. johnson & johnson says first-quarter earnings beat estimates. the big reason -- stronger drug sales. they have become j and j's biggest division. as your latest bloomberg business flash. u.s.han: the open in the is 13 minutes away. decent openings in japan. that followthrough to europe as well as dow futures are up 33 points. a fresh toy 16 high. i will get a tour of europe with anglo-american up 2.47% on the screen right now.

taking you to switzerland and a big drug player beating first-quarter revenue. here's a big pop -- l'oreal with big sales bring in the stock up 4.71%. the shares rising the most in seven months after revenue of the world's largest cosmetics maker the estimates on strong domestic demand. anyone who has watched matt miller get his makeup done, it's a stock to watch. matt: privacy face of makeup and i bought all of it on ebay. let us start there. morgan stanley downgrading the shares to an underweight, flashing their price target to $24.50. the analyst there sees emerging-market risks on slower net buyer growth. ebay shares down a percent in 2016 and almost down 3.5% in the pre-markets. i have a lot of motorcycle items for sale on ebay if you want to

check out my little marketplace. jeffries is getting hungry. the narrow shares are climbing after jeffries upgrades its price from a buy to a hold. the market isys underestimating the company's earnings power in the next few years and shares demand a premium valuation. toy are trading for tw our $70.50. check out the shares of facebook. the analyst at needham says she is optimistic about the companies new monetization efforts for facebook messenger. we are all forced to download it or use it on our phones. targetingreams facebook ads. facebook is taking over the world. they are reporting earnings next weekend after the close. david: i'm looking forward to it.

next, we are going to talk about the dollar. is the market outlook on the fed to dovish? we will talk with david lev bovitz next on "bloomberg ." ♪

david: boston fed president said yesterday that he sees a much healthier economy than the markets have implied. the central bank should act accordingly. >> i actually think because the economy is stronger because the economy is fundamentally sound that we are going to have conditions where gradually raising rates faster than financial markets expect would make sense. david: j.p. morgan asset management global market ovitz isst david leb with us now. what do you think of the likelihood of the fed raising rates and what does it mean for investors? david lebovitz: once again, a little too much fed speak has

act the fed into a corner. last year, they said they want to hike rates four times in 2016. the market did not like that over the first six months of the year. then they came out in march and said we are only going to raise it twice. they say to, but the market is thinking one. i think we will get to hikes this year come about won't happen is that they will say we are going to do three. the fed will not take a step back and say we are not going to do two. the maximum we are looking at for this year is two. the market still thinks one. i think the economy is healthier than the market is pricing in. if you assume the labor market continues to tighten over the course of 2016, that leads to a little more inflation. i would say we arty have near full employment and that means the fed has met their dual mandate. david: is there a difference between one and two with what will happen with fx and the dollar?

david lebovitz: i think the dollar is the wildcard. i have a thesis that the fed has a number of levers they can pull when it comes to dictating monetary policy. historically what people used to his interest rates. they lower it when the economy is bad. the dollar titans financial conditions for the federal reserve and a week of dollar loosens financial conditions. yellen speech of only two rate hikes this year combined with a weaker dollar has led to a rally. when they talk about amid your rate hike, that will put upward pressure on the dollar. that will tighten financial conditions and that will make the fed's job harder when it comes to raising rates. jonathan: to your point, has the fed outsourced monetary policy to the market at this point? isn't that done now, over with? david lebovitz: to the extent, that is the direction they are moving in. if you look at the movements of the past two years compared to

what the market has been pricing income of the fed is bringing their estimates and line toward the market. investors are playing a role and i think it is key to watch the dollar. if i was focused on one thing, it would be the u.s. dollar. that determines the commodity story, the e.m. story, and how the fed hikes this year. vonnie: we are seeing that with dxy. tothat a one-time transition get it all at once or is this something that trickles down throughout the year? david lebovitz: when the fed starts talking about hiking during the middle of the year, and i think april is off of the table, but when we get towards june and july, there will be conversation about a fed hike. that will put pressure on the dollar and that will leave the currency to strengthen. the 10 year treasury is a high-yield bond. vonnie: do you recommend? david lebovitz: i do not think he refers them, but you have to be car gazette of them.

that, but the dollar is the indicator to determine which direction these things are headed in. if we are in a secular decline before the financial crisis, i think dmn risk assets will benefit. see a healthier economy, that will be a headwind for these investments. david: david. is staying with us over to jonathan now. arethan: up next, we counting you down, just under four minutes away. on the stockrope 600 and a global rally is set to continue in the u.s. dow futures creeping a little bit lower. s&p 500 futures up about seven points. ♪

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even late at night, or on the weekend, if that's what you need. because you have enough to worry about. i did not see that coming. don't deal with disruptions. get better internet installed on your schedule. comcast business. built for business. thank you. ordering chinese food is a very predictable experience. i order b14. i get b14. no surprises. buying business internet, on the other hand, can be a roller coaster white knuckle thrill ride. you're promised one speed. but do you consistently get it? you do with comcast business. it's reliable. just like kung pao fish. thank you, ping. reliably fast internet starts at $59.95 a month. comcast business. built for business. jonathan: this is "bloomberg ." i'm jonathan ferro in the city of london.

,s the session once down joining us now alongside david ovitz. is david leb the bases are loaded ahead of the u.s. open and you hear the opening bell. futures are little bit high and we are just rolling on the session a little bit though. up 4/10london, the ftse of 1%. i will bring up the scorecard in other asset classes. 10920.lar yen higher at contract,the print about 1.5% up. let us to pick back a little bit and get to matt miller. matt: i'm looking at earnings gains across the board. the s&p 500 up 2/10 of 1%. you saw the dow switch down to a

drop of 31 hundredths of 1%. the nasdaq is still a gainer. if you look at my bloomberg, i have the imap up divided between winners and losers. we see all green here as far as the 10 industry groups. you only see a touch of red nit and consumer discretionary and consumer staples. health care, which is odd, because in health care, you have some really positive names. you have unh, which did well. you had j and j, which beat earnings estimates and lift its full-year forecast. johnson & johnson only up 6/10 of 1%. unitedhealth group up 2% right now and they are pulling out of five states. i expect that has some impact on them as well. harley davidson doing better was looking for.

their keeping their forecast for the year. in acycle sales have been weak spot. harley davidson makes more motorcycles and other manufacturers in the world put together. that is how much it dominates the big bike market. take a look at the big losers. netflix -- we have been talking about it all morning. disappointed analyst with its international subscriber additions. opened up in 130 companies, but they are only going to add 2 million subscribers internationally at the earnings release yesterday. goldman sachs also really disappointing as far as the revenue was concerned, down to the lowest level since before lloyd blankfein got there in 2006. they did beat on earnings, but who does not. ibm also disappointed with its outlook as well as philip morris. vonnie: matt, thank you so much.

yields on the 10 year treasuries have declined. we are looking at 1.77%. , rubber tipyear maintains a positive outlook could he sees the glass is more than half full. this half $1 trillion in fixed management income. ovitz.o have david leb want to begin with you robert. hsbc was among those looking at 1.25% on the 10 year. what is your call at the rest of the year? robert: i think the bottom end of the range is 1.25%. i would be very surprised if we got higher than 2.25%. betweenspend most the 1.5% and 2%. --nie: does this depend on jonathan: i think the markets of man's is happening on cap --

isert: i think market demand on the market. the movement on the front end of the curve has not been dominated. what has been dominating on the . market.is the bund this is an extremely low interest rate world and i think investors are confused about that. they are at a risk of early missing the opportunity in fixed income even from here over the next few years. jonathan: we have this tug-of-war right now because the perception is that the fed will run policy hard and we should meet further along the curve. what you pointed out quite clearly is that you are going to have that demand because the u.s. yields are high compared to everywhere else. who wins out? robert: as we were discussing a bit earlier, there is very little price pressures. what is going on out there is

the secular slowdown in terms of growth. you cannot underestimate china, which was a huge buyer of commodities around the globe and the slowdown going on there. basically with this level of growth and the amount of excess capacity, you're not going to have inflation. you have a surplus of capital to invest and high-yield products are going to be dominating whether those are denominated in euros or dollars. the train hasan pretty much left the platform there. in some respects, we will be catching up with that secular trend. jonathan: when we compared treasuries versus bones, we usually do it with nominal yield. should we be looking at real yield? is there different story there? that,: when you analyze the real yields are very highly correlated on a global basis.

the inflation rates around the world are quite different depending upon the underlying demographics and dynamics of the economy. so in terms of nominal yields, we are really stretched relative to bunds. i think that is the dominant factor. that is really what slowed the fed. if you are pushing u.s. rates wider than the rest of the world, you have a resurgence of the strong dollar, you really begin to rip capital out of the emerging markets and get the stress that the fed was seeing earlier. when it was warranted, the markets remained relatively risk on an equity performance was relatively good. with the fed heating the market and the tightening of financial conditions, that was really the right move on their part. this is going to be very good for fixed income. we are going to get background of investors running the yield. vonnie: the german 10 year yield right now is 17 basis points . that is a full 150 basis points

lower than the u.s. 10 year yield/ . where else are you looking for yields? we have been speaking a lot today about brazil and argentina. do they not look a little more attractive? incrediblys is an difficult thing, but even in europe, they are still on the way down in rates. in all likelihood, the return bunds could be as-year percent. that is if you buy it on the basis and those are the lowest expected turnout. does a lot of attractive spread product in europe as well. david: i cannot help but be struck by these incredibly low yields in german bunds. we are talking about argentina going to the market. 16.5 billion dollars with yields between 6.25% and 7.5%. does this drive capital into

those? david lebovitz: i'm not sure it drives capital, but there is demand. when you look at investor preferences across stock and bond markets, you want bonds that look like stocks and stocks that look like bonds. they want income from things like utilities and defenses we were talking about earlier. of the highere yields and emerging-market debt where the risk profile seems to have improved from a couple years ago. i think there's definitely demand for these securities, but what we always remind clients is that higher yield implies more risk. you're taking on more risk in the portfolios and you need to be cardin is that of that. being overweight on stocks and yield is a pretty precarious position. vonnie: matt, you have something on china. matt: it has been the most read story on the bloomberg terminal. at least it was at four clock this morning and it stayed there for quite a while. this is the spread between corporate debt and equal

maturity. ou can see that it has blown out. you have nine out of the last 10 days with yields rising as investors selloff corporate debt. you had $10 billion of corporate issuance canceled in april alone. number of junkd bonds or companies that issue junk bonds failing. you had real concern about the debt market in china. david: and some defaults. there are real defaults. matt: a record number of defaults and the junk category. david: how concerned should we be with china at this point? robert: china is going from a ammand economy to in control economy. there is incredible credit growth along the lines of what we had before the financial crisis we had in the united states. it is deftly something to watch,

but i think as we saw with their wert market crash last year, may have insulation from that and it may not flow directly through other markets. on the stock versus bonds, that david was making, i think it is definitely true that when you go out of the yield curve and go down in quality you are taking more risk. see withre going to the earnings growth tapering is that you're going to get less returns from stocks andes higher-yielding products, whether they be long maturity investment-grade or at the higher-quality end, you're going to get equity like returns. vonnie: robert, thank you so much. he is the chief strategist. zhanks also to david lebovit although he is sticking with us. jonathan: about 10 mins into the session, up next, first-quarter revenue at goldman sachs is the worst since ceo lloyd blankfein took over. can the bank continue to cut its way to profits? that is next on "bloomberg

." 10 minutes into the session, stocks up higher around 2/10 of 1%. gaming butks not by much. ♪

matt: i am matt miller in the new green room. make sure to tune in later today at three clock for td ameritrade ceo fred thompson. vonnie: you are watching "bloomberg ." i am vonnie quinn with your latest bloomberg business flash. argentina shut out of global credit markets for 15 years is now returning with a blockbuster sale. it is planning to sell $16.5 billion worth of bonds in a four-part offering.

that will be a single day record for developing country and it would mark the end to end. of isolation that has followed by argentina's default in 2001. folks like investigators are looking into the automakers emissions testing scandals are tripped up by codewords. they say it was for the technology that vw used to turn off solution controls when the cars were on the road. of world's largest leap up traded tobacco company is raising is forecast. the left worst -- phillip morris pritikin the dollar will not hurt it much. first-quarter earnings missed estimates. that is your latest bloomberg business flash. lettuce head over to matt miller for a check of stocks that are moving out of the open. matt: it is not look like philip -- philliptors morris investors believe in increase forecast because those shares are down 1.7%. let us look at the other stocks

that are moving. tech are a lot of stocks on the move. we have been talking about the big miss at nex netflix. when he kick it off with hard because i was so excited. 7% in thewas up premarket or after earnings came out. after the company held onto its phot motorcycle sales in the u.s., it had sales rising 4%, but the market isme u down almost 2%. does the market want to see a boost to the forecast and they do not get it? i will find out why tomorrow when i talked to the ceo at 10:30 a.m. let us take a look at all these tech stocks i was talking about. netflix getting absolutely crushed, although it is fair to point out that netflix moved three standard deviations more than half the time a report earnings. it is all over the chart on

earnings days. ibm disappointing with a forecast lower than street estimate. a getting a downgrade of morgan stanley over international concerns over international growth. that stock down 2.5% as well. these tech stocks really a weight on the index, holding the s&p back from further gains. we will continue what goes on with these markets. there are so much earnings news today. david: i love your excitement . it's time to get to abigail doolittle. she is at the nasdaq and looking at stocks going into different directions. stock plunging. the company missed its first-quarter sales outlook and also reduced the four year sales outlook could thi. this weakness being driven by europe. the street is bearish.

reducing price targets to $166 per share. when we take a look at a long-term chart, sellers have reversed a long-term uptrend. it will be up to the buyers and buying support to keep the lows. of illumina from panera shares are higher on to analyst upgrades, including o'cole, who chris believe in strong earning growth in the years to come. it will be interesting to see whether or not the sellers push the stock back into a range perhaps around the company's first-quarter report next tuesday. jonathan: coming into today's session, goldman sachs was the worst performer on the dow so far this year. some might say it reported numbers to match. if 60% drop in profit from the

year earlier. the bank missed on revenue. the profit coming from cost-cutting efforts. it is goldman's worst start to the year since 2004. joining us now to discuss his michael moore. also with us this even level it's. lebovitz.d we wrapped up the least ugly contest on wall street, but it's very hard to make any kind of comparison from bank to bank because the earnings are so nuanced at morgan stanley. it is very easy to say ugly, ugly, ugly. how do you make comparisons? michael: it is very tough because a lot of banks have change their business mix. they do not look as similar as they used to. the comparisons for each other are a lot different than they used to be. ultimately, it comes down to roe. that is what investors are comparing each of these banks on

and none of them look good by that measure on this quarter/ ,. jonathan: a lot of people picked up a fixed income revenue. the quote from the ceo is the averment of the first quarter of 2016 stands in stark contrast to the first quarter of last year coul it i. it does not tell me why they did a lot worse in this environment than of others. they do not give it a lot of clarity on what drives that, but they have been playing this waiting game saying other people will get out of this business and we are going to benefit . so far, they have been losing revenue share. they would tell you that all revenue is not equal, but their returns do not reflect them picking and choosing what business they want to be in. they are reflecting a 50% drop. jonathan: david, to bring you in the conversation, the narrative of the blessed couple of months was that we would see a series of job cuts. compensation would be cut in europe and the u.s. bank's would come along to boost market share

and take their pick of talent. what you have seen is that compensation and jobs are seeing similar cuts. that narrative -- is it looking less clear now? david lebovitz: i'm not sure it is looking less clear. the most important point that michael made is that roe does not look good. the companies are struggling to boost the bottom line. there's more cost-cutting going forward because that is a way that they can boost net income in the current environment. we have seen quarter after quarter that these are characterized by a slowdown in trading revenues and characterized by a slowdown in general business. what do you do to boost margins? if revenues are not doing it for you, you have to employ cost-cutting. i'm not sure that we are out of the woods, but this is all compounded by the fact that negative interest rates have freaked investors out and called into question the viability of future institutions. jonathan: the goldman stock is down 11% this year. looking at what is going

forward, we have had a lot of people say to pay the debt and not the equities. the numbers that we are expecting in 2016 reinforced that trade. do not play the equity story? michael: i think that mix a lot of sense. david lebovitz: when i think of that as an investment, you're focused on things like cost-cutting. equity is taking more of the bet. playing the debt over the equity makes sense in the current environment. however, what i would point out is that as financials begin to come out of the woods, if you yields havend been attractive historically and could rise. while credit is the best way to play right now going forward, i do think equity will play a role. vonnie: the ceos all talked about expense cutting and that was one of the major parts of goldman's story as well. based on today's results, kim goldman afford to cut more extensive -- kim goldman afford to cut more expenses? michael: they are certainly trying to coulo.

they been mostly cutting around the edges and not taking chunks like the europeans do. a few more quarters like this and you may see more questions on whether that is something meeting to do. up until now, they have had returns that having good enough that they have not had to deal with those questions because they had double-digit returns. now this were to return where they are at 6%, suddenly that becomes a real issue. jonathan: at least for now in the short-term, it is the upside surprise that matters. the stock is up 1.38% as i speak. my special thanks to bloombergs michael moore. lebovitz, thank you. david: coming up, we looking forward to "bloomberg markets" with betty liu and mark barton. >> we are following that explosive story of a criminal

inquiry by the sec. we're going to go through that with our news reporter. a.m., a10:00 subcommittee in congress is going to take a look or investigate the encryption battle between law enforcement and companies, in particular apple. the general counsel will be testifying before the congressional committee. we will keep our eye on headlines coming out of that. i do not know if you are surely temple fans, but her blue diamond ring is going to be auctioned off this week by sotheby's. i do not even want to know the price tag. the back story is that she was given that diamond ring by her father when she was 12 years old. we are going to be featuring that later. now you know what to get your significant other. [laughter] vonnie: or your 12-year-old

daughter. thank you so much. at what islook ahead coming up later today. ♪

vonnie: this is "bloomberg ." i am vonnie quinn. today, new york holds its presence of primary and mark carney speaks to lawmakers later. the ecb rate decision and news conference is on thursday. jonathan: keep an eye on the earnings. a tech focused afternoon as yahoo! and intel released earnings after the bell. yahoo! may give investors include into plans to sell off its core business. david: we're going to have microsoft and mcdonald's earnings. that will do it for "bloomberg ." thank you for joining us. we hope you have a good day. ♪

mark: i am mark barton and this is "bloomberg markets" on bloomberg television. >> here is what we are watching. 30 minutes into the trading session in new york and stocks are fluctuating. european equities rising to their highest level since january. climbing to over $40 a barrel. can u.s. markets built off a high that we have not seen since last year? quarteran sachs first profit drop 60% as revenue plunges. a look at what is behind the punch and what the chief executive is doing to try to turn around the word -- the worst-performing stock in the dow this year. -- itwas one value that

was once valued at $9 billion. they are admitting they are under investigation by the sec and the u.s. attorney's office. she says is